Taxing authority and tax law
Tax authority: Internal Tax Service (Servicio de Impuestos Internos, or “SII”)
Tax law:
- Chilean taxation rules are established in the Income Tax Law (ITL), enacted in 1974
- Tax Authority Circulars issued every year provide interpretation of the articles of the ITL, and are not modifications of it
Relevant regulations and rulings
The only mention of transfer pricing issues is found in Article 38 of the current ITL. Also in Circulars No. 03 (1998), No. 72 (2002) and No. 49 (2010) introduce more detailed information on the application of arm’s length principle, approaches, timing control, among others.
Currently, there are no specific rulings on TP matters.
OECD guidelines treatment
Although the local legislation does not mention the OECD guidelines, the legislative interpretation contained in Circular 03 (1998) reflects the arm’s length principle as set out in these guidelines. The OECD reference is made only through the listing of tax heavens, in order to determine when two or more entities are related from TP perspective. It is important to note that due to the inclusion of Chile as a full member of the OECD in 2010, is promoted in the medium term, any legislative reform in which direct reference is made regarding the adoption of transfer pricing guidelines.
On the other hand, there are no specific rules regarding the business restructuring issues in Chilean ITL.
Priorities/pricing methods
Based on Circular No. 3 of 1998, the methods to be used for TP purposes for the analysis of the CUP intercompany transactions are: CUP, Resale Price Method and Cost Plus. Not expressly stated the use of established methods in the OECD (TNMM, Profit Split Method), but could be applicable.
Transfer pricing penalties
The amount of the transfer pricing adjustment will be subject to a 35% in case of companies incorporated as “Sociedades Anónimas” (public limited companies). For companies distinguished as “Sociedad Limitada” (limited liability companies), the TP adjustment will be treated as a deemed dividend (also subject to 35% with corporate tax credit if the entity has foreign shareholders). However, general tax penalty framework applies for TP adjustments. In this case, the taxpayer must pay a fine equal to 60% of the unpaid tax, adding a late payment interest of 1.5% per month imposed retroactively as the date when the tax was supposed to be paid.
Penalty relief
There is currently no penalty relief available. However, the existence of contemporary TP Documentation would be intended by the tax authority as a proof of “good faith” by the taxpayer. In these cases, the TP penalty risk is reduced.
Documentation requirements
Neither the Chilean ITL nor its related circulars aforementioned provide specific guidelines to prepare a TP report or to file an informative TP Return. However, it is expected that the taxpayers keep the information support for all the intercompany transactions subjected to TP rules.
Documentation deadlines
Given the absence of any formal TP documentation requirements, no filing deadlines currently apply. The taxpayers must have information that supports intercompany transactions, if it is required by the tax authority.
Statute of limitations on transfer pricing assessments
General statute of limitations is three years. It could be extended to six years in case no return is filed or if the authorities consider that the returns are maliciously false. Based on Circular No. 49 (2010), there are distinct limits to conduct audits, depending on the size, complexity and other characteristics that can arise. In this sense, in the case of TP audits, the period applicable will be of 12 months, in which the tax authority will test the proper application of the arm’s length principle on the following cases:
- Where the net income to be determined taxpayers with taxable sales or revenues in excess of 5,000 monthly tax units
- Where a review of the tax effects of corporate reorganization
- Where a review of the accounting of transactions between related companies
Return disclosures/related-party disclosures
Currently there is no obligation on the part of taxpayers to disclose transactions undertaken with related parties domiciled abroad. However, recent revisions made by the Chilean tax authority on compliance issues, has requested information about transactions carried out with related parties through a questionnaire.
Audit risk/transfer pricing scrutiny
Chilean Tax Authority (SII) has the burden of proof and has the power to request at any time the documentation support of the intercompany transaction subject to TP rules. At this time, there are high probabilities that the tax authority begin a process of TP audits, due to the recent inclusion of Chile as a full member of OECD. However, it is important to mention that there are no known formal TP audit processes.
APA opportunity
The Chilean income tax law does not currently include any statement to provide an opportunity to implement an APA.
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